Danone Sees Second-Half Rebound After Full-Year Earnings Slump

A clerk takes stock of Danone's Dumex brand of infant baby formula at a store in Beijing. Photographer: Nelson Ching/Bloomberg

Feb. 20 (Bloomberg) -- Danone forecast a resumption of
growth in the second half of 2014 as the world’s biggest yogurt
maker rebuilds its infant nutrition brands in China following
the first annual earnings decline in more than a decade.

The latter part of the year will be stronger than the first
as the maker of Evian bottled water also seeks to stabilize its
business in Europe amid “sluggish” consumer demand in the
region, Paris-based Danone said today in a statement.

The year will be marked by persistent milk price inflation
and exchange-rate volatility in emerging markets, Danone said.
The company’s baby-food business suffered from a recall last
year after a botulism scare in Asia, which turned out to be a
false alarm. The maker of Activia yogurt has also been weighed
down by bribery claims at its Dumex baby-milk business in China.

“They’re clearly giving themselves room for maneuver
depending on how things work out in the first half of the year
in baby food in China,” said James Targett, an analyst at
Berenberg Bank in London.

Danone rose as much as 2.9 percent in Paris trading and was
up 1.9 percent at 51.95 euros at 10:38 a.m. as the Stoxx Europe
50 Index fell 0.9 percent.

“Organic growth in sales and operating margin will vary
widely from one half to the next in 2014,” Danone said in the
statement. “The group thus anticipates a return to strong,
sustainable, profitable growth beginning in the second half.”

Nestle, Unilever

Danone expects second-half sales growth may be as much as 6
percentage points higher than in the first half and that margins
may be 3 to 4 percentage points higher, according to company
spokeswoman Charlotte Pasternak.

Last week, Nestle SA Chief Executive Officer Paul Bulcke
also forecast a stronger second half after a period of “very
soft” pricing power. Unilever, the maker of Magnum ice cream,
said in January that decelerating growth in emerging markets and
stagnant demand in developed countries will continue.

Danone plans to return to sales growth in European dairy by
the end of the year as it introduces American-style Greek yogurt
to the region, CEO Franck Riboud said on a conference call. The
product is high in protein rather than high in fat like
traditional Greek yogurt. The company also got Food and Drug
Administration approval to advertise Activia yogurt in the U.S.
with three health claims regarding digestion, Riboud said.

Danone’s adjusted earnings per share fell 7.6 percent to
2.78 euros ($3.82) in 2013, missing the 2.84-euro average of 29
analyst estimates. Trading operating profit fell 5 percent to
2.81 billion euros. The company cut its 2013 forecasts in
October and said the food scare set it back by six months.

‘Insipid’ Outlook

Like-for-like sales increased 2.9 percent in the fourth
quarter, beating the median estimate of a 2.7 percent gain. The
measure excludes items such as divestments and currency shifts.
For the year, revenue on that basis gained 4.8 percent.

Danone expects 2014 revenue to rise 4.5 percent to 5.5
percent, while the operating margin may widen or narrow as much
as 0.2 percentage point on a like-for-like basis.

The forecasts are a bit “insipid,” Jon Cox, an analyst at
Kepler Cheuvreux, said by e-mail. Still, “the worst may be over
for a company which has been hurt over the last 24 months.”

Danone is weighing the sale of its medical-nutrition unit
in a deal that may fetch more than 3 billion euros, a person
familiar with the matter told Bloomberg News this month.
Fresenius SE, a German health-care company, is considering
bidding as much as 4 billion euros for the division, Reuters
said, citing two people close to the situation it didn’t name.

Chief Financial Officer Pierre-Andre Terisse today declined
to comment on whether Danone will sell the unit. The French
company acquired the business in 2007 with its 12.3 billion-euro
purchase of Royal Numico NV. The unit makes products from
Nutrison, its tube feeding range, to Souvenaid, which
accompanies treatment at an early stage of Alzheimer’s, and
accounts for about 6 percent of total revenue.